Dodd Frank 2 Year Anniversary Report July 2012

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DODD-FRANK 2-YEAR ANNIVERSARY REPORT

State of the Financial Services Industry

July 17, 2012

Focus on fortress balance sheets; too big to fail;the cumulative weight of new rules; and economic benefits of big banks


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State of the Financial Services Industry

The two-year anniversary of the Dodd-Frank Act is marked by a safer and stronger

financial services industry. Capital is at a record high, lending is at pre-crisis levels, andthe number of problem banks is rapidly decreasing. The risk profiles of individualfirms have been reduced and systemic risk oversight is in place for the first time inhistory. These dramatic improvements are the result of industry initiative and financialregulatory reform.

However, financial services companies (and the economy) have yet to face some of themost expensive costs coming from the Dodd-Frank Act. Nearly 70% of the rules haveyet to be finalized. Many of the expected provisions carry significant economicconsequences for the industry, consumers, and the economy.

At this critical time in our nations economic recovery, we must preserve those parts of

the Dodd-Frank Act that make our system safer and stronger, while re-examining theprovisions and combination of provisions that needlessly restrict economic growth,limit credit, result in higher costs and reduced access to services for consumers, andmake U.S. companies less competitive.

Fortress Balance Sheets

Banks are much stronger today than they were even before the 2008 crisis. According tothe Hamilton Financial Index released on July 16, 2012, bank safety and soundness is

22% above pre-crisis levels.

Bank capital is the highest in history. FDIC-insured banks hold $1.6 trillion in capitaland set a record Tier 1 capital ratio (13.28%) in the first quarter of 2012. Insurancefirms capital and surplus have also grown to all-time highs, despite an increase innatural disasters in 2011.

Lending has risen to pre-crisis levels. Large banks with over $10 billion in assetsincreased their loans by $40 billion during the first quarter of 2012, and loan qualityhas improved across all loan categories and all bank sizes.

Net income has returned to pre-crisis levels. FDIC-insured commercial banks and

savings institutions reported $35.3 billion in net income for first quarter 2012. Thisrepresents a $6.6 billion (22.9%) improvement over first quarter 2011 results.

Bank failures are at their lowest level in three years, and the number of probleminstitutions is now at its lowest level since 2008.

The improved health of the financial services industry is widely recognized. Accordingto Federal Reserve Chairman Ben Bernanke, Risk indicators present a picture of the


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banking system that has become healthier and more resilient. Presidential candidateMitt Romney echoed this sentiment, recently saying, Our banks are on a much strongerbasis than they were at the time of the last economic crisis, and they have built theircapital base and their equity base and worked through a lot of their toxic assets.

Systemic Risk & Too Big to Fail

The risk and impact of a financial services institution failing has been significantlyreduced through industry improvements and financial regulatory reform.

Supervision of large financial services companies has increased dramatically. Forexample, large banks must submit detailed plans and stress tests to the Federal Reserveon an annual basis before they can pay out dividends to shareholders or make any othercapital distributions. Additionally, the Dodd-Frank Act mandates that large banksconduct three stress tests each year and publicly disclose information about the results.

Systemic oversight is in place for the first time in history. The Financial StabilityOversight Council was created to monitor risk across the entire system, and identifyand head-off emerging trends that could be a threat to financial stability.

In the unlikely event that a large financial company actually fails, the FDIC now hasliquidation authority to swiftly isolate and resolve the firm. Large financial servicescompanies must plan for their own failure and submit extensive resolution plans to theFDIC and Federal Reserve each year with an overview of how their institution would beresolved.

While there is no single definition of too big to fail, it is commonly used to describe afinancial institution whose failure would destabilize the economy and thus requiregovernment intervention using taxpayer funds to keep it afloat. The improved healthof financial institutions, increase in systemic risk oversight, and statutory protection oftaxpayer dollars means that too big to fail is no longer a problem.

Cumulative Weight of Reform

According to Davis Polks Dodd-Frank progress report, 279 of 398 rules (70%) requiredby the Dodd-Frank Acthave yet to be finalizedas of July 2, 2012.

Many of these rules will dramatically alter the ways financial services firms do business,and the cumulative weight of hundreds of new rules promises to be significant for theU.S. economy. Consider these findings from recent studies:

As the result of regulatory reform, U.S GDP is projected to be 2.7% lower than itwould otherwise be by 2015, lending rates are projected to be 4.7% higher, and


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the U.S. is projected to lose 2.9 million jobs. Institute for InternationalFinance Report, September 2011.

The Volcker Rule is estimated to cost American businesses up to $315 billion,increase borrowing costs by up to $43 billion per year, and dramatically reduce

liquidity.Oliver Wyman Study, January 2012.

It is the risk that the Dodd-Frank apparatus will smother financial institutions inso much red tape that innovation is stifled and Americas economy suffers.The

Economist, February 2012.

Free checking in the U.S. has declined by 40% to the Durbinamendment and overdraft rules. Bankrate Survey, 2011.

Since passage, the Dodd-Frank Act has produced more than 52.7 millionpaperwork burden hours and imposed $7 billion in direct compliance

costs. Based on calculations from The Financial Services Roundtable, Dodd-Frank regulations will require 26,352 employees to file federal paperwork.

American Action Forum, July 2012.

The Financial Services Roundtable has cataloged nearly 150 independent studies andpublic statements about the economic impact of the Dodd-Frank Act, available athttp://bit.ly/S5zbFF. These reports conclude that the cumulative weight of Dodd-Frankrules will restrict economic growth, restrict the availability of credit, increase the cost offinancial services for consumers, and place U.S. financial institutions at a competitivedisadvantage.

The costs of the Dodd-Frank Act are often weighed against the benefits of preventingthe next crisis. But it is crucial to note that many of the most expensive provisions, suchas the Durbin Amendment and Volcker Rule, do not address factors of the 2008 crisis.

Going forward, it is crucial to minimize the negative economic consequences of the newrules and support the vital role that large financial services companies play in the U.S.economy.

Economic Benefits of Big Banks

Healthy, diversified, and large financial institutions are essential to the U.S. economy.Their provision for consumers, businesses, and global competitiveness cannot beunderstated and must be protected.

Large banks provide the vast majority of credit in the U.S. economy schools, hospitals,small businesses, and personal expenditures. According to FDIC data, banks with morethan $10 billion in assets finance 40% of small business loans, extend 85% of consumercredit, and manage 70% of home loans.
http://www.iif.com/download.php?id=oXT67gHVBJk=http://www.iif.com/download.php?id=oXT67gHVBJk=http://www.oliverwyman.com/volcker-rule-proprietary-trading.htmhttp://www.oliverwyman.com/volcker-rule-proprietary-trading.htmhttp://www.economist.com/node/21547784http://www.economist.com/node/21547784http://www.economist.com/node/21547784http://www.economist.com/node/21547784http://www.bankrate.com/finance/checking/7-ways-checking-accounts-cost-you-more-1.aspxhttp://www.fsround.org/fsr/dodd_frank/dodd-frank-burden.asphttp://www.fsround.org/fsr/pdfs/fast-facts/2011-11-10-GlobalCompetitivenessWeek2.pdfhttp://bit.ly/S5zbFFhttp://bit.ly/S5zbFFhttp://www.fdic.gov/http://www.fdic.gov/http://bit.ly/S5zbFFhttp://www.fsround.org/fsr/pdfs/fast-facts/2011-11-10-GlobalCompetitivenessWeek2.pdfhttp://www.fsround.org/fsr/dodd_frank/dodd-frank-burden.asphttp://www.bankrate.com/finance/checking/7-ways-checking-accounts-cost-you-more-1.aspxhttp://www.economist.com/node/21547784http://www.economist.com/node/21547784http://www.oliverwyman.com/volcker-rule-proprietary-trading.htmhttp://www.iif.com/download.php?id=oXT67gHVBJk=http://www.iif.com/download.php?id=oXT67gHVBJk=


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Large financial institutions are uniquely positioned to support global companies, suchas Apple (valued at $324 billion) and Exxon Mobil (valued at $415 billion), by providingthem with access to capital markets, cash management, credit, foreign exchange, riskmanagement products, trade payments, investment products, and other criticalfinancial services.

Large financial institutions drive much of the innovation in the industry such as onlinebanking and mobile banking, have advanced payments and clearing technologies, andare recognized leaders across all industries in cybersecurity.

Banks have grown proportionately to support the needs of the U.S. economy. Over thepast 20 years, U.S. bank assets have grown 237%, mirroring the percentage increases inU.S. exports (243%) and the S&P (292%), according to data from Bloomberg, theFederal Reserve, and U.S. Census.

A study undertaken by The Clearing House concludes that the unique benefits large U.S.banks provide to companies, consumers, and governments total $50 billion to $100

billion annually.

Conclusion

The financial services industry has come a long way since 2008. Sweeping legislative,regulatory, and industry changes, have made the industry safer and stronger. Theindustry remains committed to customers and communities and is helping to fuel theeconomy through lending.

In the next 12 months, hundreds of additional Dodd-Frank rules are scheduled to befinalized. These new rules will be issued in a hyper-charged political environment,with the Presidential and Congressional elections taking place in November, the fiscalcliff approaching at the end of 2012, and what is shaping up to be relatively tepideconomic growth for the rest of the year.

It is essential to set aside political rhetoric and issue new rules prudently, supportingthe parts of the Dodd-Frank Act that make financial services industry safer andstronger, while re-examining the provisions and combination of provisions that areneedlessly detrimental to consumers, economy, and Americas financial servicesindustry.
http://www.theclearinghouse.org/index.html?f=073068http://www.theclearinghouse.org/index.html?f=073068


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About the Roundtable

The Financial Services Roundtable represents 100 of the largest integrated financial

services companies providing banking, insurance, and investment products andservices to the American consumer. The mission of The Financial Services Roundtableis to protect and promote the economic vitality and integrity of its members and theUnited States financial system. Roundtable member companies provide fuel forAmerica's economic engine, accounting directly for $92.7 trillion in managed assets,$1.2 trillion in revenue, and 2.3 million jobs.

For more information about the Roundtables Dodd-Frank research, visithttp://www.fsround.org/fsr/publications_and_research/cumulative-weight.asp

The Financial Services Roundtable

FINANCING AMERICAS ECONOMY1001 Pennsylvania Avenue, NW

Suite 500 SouthWashington, D.C. 20004

202-289-4322www.fsround.org

Contacts for this publication:

Scott Talbott

Senior Vice President of Government [email protected]

Abby McCloskeyDirector of Research

[email protected].
http://www.fsround.org/fsr/publications_and_research/cumulative-weight.asphttp://www.fsround.org/fsr/publications_and_research/cumulative-weight.asphttp://www.fsround.org/http://www.fsround.org/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.fsround.org/http://www.fsround.org/fsr/publications_and_research/cumulative-weight.asp

Dodd Frank 2 Year Anniversary Report July 2012

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